Talk Money: December 4

The New Zealand dollar dropped overnight against other major currencies.

The biggest fall was against the Euro.

It was trading at 60.90 Euro cents by 8am. That was a drop of more than two and a half percent.

The European currency rallied after Europe's Central Bank announced it would continue to pump billions of Euros into its economy until at least March 2017.

But the stimulus package was not as large as the world markets had been expecting.

Many traders had sold their Euros ahead of the announcement, expecting that further stimulus or "money printing" would cause the Euro to lose value.

When it turned out the stimulus package was not as large as expected it prompted traders to rush out and buy back some of the Euros they had sold off.

EUROPEAN INTEREST RATES

New Zealand interest rates are at low levels, but nowhere near the levels on offer in Europe.

European Central Bank President Mario Draghi announced that as part of the stimulus package he was cutting the ECB's key deposit rate from negative 0.2 percent to negative 0.3 percent.

If a bank wants to deposit money with the ECB overnight it has to pay to do so. The ECB would prefer that banks lend out their money rather than hoarding it. The hope is that more loans to businesses will encourage more investment and job creation.

THE U.S. DOLLAR

The Kiwi also lost ground overnight against the US dollar.

That was after Federal Reserve Chair Janet Yellen told Congress the American recovery was on track. This was seen as a big hint that later this month the Federal Reserve will go ahead with its first interest rate hike in almost a decade.

Higher interest rates will encourage people to deposit their cash in the United States because they will get a better return on their money. So as people rush to buy the US dollar it drives up the value of those dollars on world markets.

That is behind the recent rally in the US currency. Traders have been buying the US dollar in anticipation of a rate hike.

Although the Kiwi lost ground against the US dollar overnight it has now recovered.

The Kiwi was trading at 66.59 cents by 8am. That compares to 66.20 at around 5am.

This shows how much the market has priced in a US rate hike. The real focus is on the pace of possible future rate hikes.

It looks like Janet Yellen wants those rate hikes to be slow and steady.

The New Zealand dollar was almost one percent lower against the Pound at 8am, trading at 44.06 pence.

The Kiwi was sitting at 90.77 Australian cents and 81.67 Japanese Yen.

West Texas oil futures were trading four percent higher at US$41.30 a barrel. There are reports that OPEC producers might intervene to prevent the oil price falling further.